Cryptocurrencies have recently attracted a lot of attention with Tesla’s move to Bitcoin, signaling the cryptocurrency has come a long way from the lesser-known digital currency it was some years back when launched. Regarded as the father of cryptocurrencies, Bitcoin paved the way for all cryptocurrencies in existence today. Fast forward, the latest decision by Tesla to invest in Bitcoin has increased confidence in the digital currency’s rise to become a form of currency operating on distributed ledger technology.
The electric car company announced in a public filing that it made purchases worth $1.5 billion of Bitcoin. The company also reported that it would begin accepting Bitcoin payments for its future products. The announcement drove a 20% surge in the price of Bitcoin to over $47,000. Without a doubt, this is a giant stride towards mainstream acceptance.
However, one question financial analysts baffle with is, why did Elon Musk’s company do this? While the reason is not clear, below are some suggestions as to why this revolutionary company joined the crypto crowd.
Diversification?
In a statement filed with the Securities and Exchange Commission, Tesla stated that the move was an opportunity to diversify its cash-equivalent holdings. The $1.5 billion investment primarily accounts for approximately 8% of Tesla’s cash assets. Large companies often store excess cash and cash –equivalents, such as commercial paper or treasury bills, for efficient operational liquidity and generate revenues with limited risks.
According to the company, this resulted from an updated policy that aimed to diversify and maximize returns on cash assets not required to maintain operational liquidity. However, this decision isn’t risk-free, especially with the volatile nature of Bitcoin’s price.
Like other cryptocurrencies, Bitcoin is a volatile asset, and some corporate financial professionals termed the move as an unnecessary additional risk to the vehicle maker’s financial position. However, even after exposing the company to possible risks by investing in Bitcoin, what made Elon Musk appear smart is the immediate rise in Bitcoin price.
Publicity Stunt?
While some read diversification measures, some people thought this is all nothing but a publicity stunt. This is because only a few thought that the company would accept it as a form of payment for vehicles in the future. Currently, you can buy the entry-level Tesla Model 3 with 0.8 bitcoins. This is a significant shift and puts Tesla on the leading edge of this new currency adoption.
Brand Management
Being the first cryptocurrency, Bitcoin has close isolations with iconic founders who wanted to break into different molds of payments. The idea behind crypto inception came into existence in 2009 by a group known as Satoshi Nakamoto.
Such rebellious ideas seem to align highly with Elon Musk’s agendas of disruption. Tesla is widely known for being the pioneer manufacturer of electric-powered cars in the current world of gas-driven cars so Tesla’s move to Bitcoin fits in with their culture and intent on always being leading edge.
That aside, Tesla embraces a direct-to-customer purchase and sales model, which sets a new completely different trend from other manufacturers that partner with unaffiliated dealerships. Lastly, Bitcoin’s decentralized structure, which is not controlled by a body, fits with Tesla’s brand image.
Are There Other Products that Accept Bitcoin Purchases?
As cryptocurrency continues evolving, we’ve seen the ability to buy luxury goods with Bitcoin increasing every quarter for the past year and picking up more speed. Among them include gold, diamond, Alienware gaming PC, Rolex watch, Charter of Yacht, Blings, and more. As Bitcoin gets mainstream, the number of luxury items and standard household items accepting Bitcoin payments will undoubtedly increase. In 2021, look for more e-commerce sites to accept Bitcoin.
Bottom Line
Tesla’s move to Bitcoin via this huge company buying investment of some of its corporate reserves is a signal that cryptocurrencies are an option for a long-term store of value. Experts anticipate that other companies, such as BlackRock, PayPal, and Square, might soon join Tesla to invest or hold Bitcoin reserves. Bitcoin is on the rise as a viable payment solution and with this move my Tesla it backs up this trend even further.
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